ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, January 18, 1996 TAG: 9601180065
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Associated Press
THE DATA DROUGHT ended, but did the information point to a possible recession or just show a slowdown following summer activity?
The U.S. economy was clearly weakening at the end of 1995, with a national gauge of future activity failing to show strength for a third consecutive month and the Federal Reserve reporting widespread signs of a slowdown.
The statistical drought caused by the 21-day government shutdown ended with three reports Wednesday, but economists split over whether the new information was raising warning flags about a possible recession or merely depicting a slowdown following a spurt of summer activity.
The most disturbing development was a 0.3 percent drop in the Index of Leading Economic Indicators for November, which followed an even bigger 0.5 percent October decline. The index had showed no gain in September and has not posted a positive reading since August.
The Federal Reserve, in its latest survey of regional business conditions, said ``The national economy was growing at a generally modest pace at the end of 1995.'' The central bank said the all-important Christmas sales season was disappointing, and weakness was noted in manufacturing.
In a more upbeat report, the Commerce Department said the U.S. trade deficit shrank slightly in October, declining 2.5 percent to $8.04 billion, the smallest imbalance in nearly a year.
The improvement was something of a statistical quirk, reflecting seasonal adjustments made to the trade flows. The deficits with America's major trading partners, including Japan, Western Europe, Canada and Mexico, all posted increases.
Fed policy-makers, who cut a key interest rate a quarter-point at their last meeting Dec. 19, must sort through the shutdown-delayed reports to determine whether further credit easing will be needed.
Many economists are forecasting the Fed will cut rates again when it meets Jan. 30-31 in view of the growing signs of economic weakness and the continued absence of inflationary pressures. In its regional survey, the central bank said businesses were reporting that ``prices are generally remaining stable,'' even though some areas noted shortages of skilled workers.
``Whether we are going into a recession or not is debatable, but the one thing that is clear is there isn't a lot of strength in the economy right now,'' said Lawrence Chimerine, chief economist at the Economic Strategy Institute in Washington. ``The Fed is already six months behind the curve in lowering rates.''
But Allen Sinai, chief economist at Lehman Brothers Global Economics, said he thought the central bank would leave policy unchanged this month, especially with the announcement Wednesday that Vice Chairman Alan Blinder is resigning to return to teaching at Princeton. Blinder had been a forceful voice calling for lower interest rates.
While three negative readings for the leading indicators index has been the traditional, though not infallible, signal of a recession, analysts said it was harder to read the two declines and unchanged September performance. But they noted that the two declines had pushed the index to its lowest reading in almost two years.
``It is certainly worrisome,'' said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis. ``The economic risk clearly is on the downside, and going into the second half of 1996 there is now a somewhat greater risk of recession.''
LENGTH: Medium: 69 lines ILLUSTRATION: GRAPHIC: Charts by AP. 1. U.S. trade in goods and services. 2.by CNBIndex of leading indicators. color.